Deals Gone Bad: California Collective Faces $7M Loss to Tribal Government

San Diego-based Outliers Collective looks like it may be on the brink of losing $7M worth of greenhouses it built on tribal land in 2017, after a series of legal blunders that, in retrospect, probably could have been avoided at every step along the way.

To make a long story short, OutCo built the greenhouses on tribal land after receiving a tribally-issued license to cultivate medical marijuana, issued by the federally-recognized Iipay Nation, after a year of negotiations and a "test run."  According to OutCo, the tribe conspired to bar OutCo personnel from entering the cultivation space essentially as soon as construction was finished.  OutCo says the tribe confiscated their plants, equipment, and greenhouses, and that the tribe turned around and re-sold everything to OutCo's competitor, GardenPharma.

The case is a fiasco for OutCo.  It is hard to see any route to even a partial victory for the cultivator, and it may be a first-round knockout for the tribe.

Where the Lawsuit is At Right Now

OutCo filed a lawsuit in federal court back in April, and the defendants filed their motion to dismiss at the end of August.

So far, the only pleadings filed are OutCo's complaint, and defendants' motion to dismiss, but it looks like this one might not get far.  The defendants have strong arguments that OutCo has no right to sue the tribe in a federal court without the tribe's consent, and they will probably win on that basis alone.

Deal Debriefing - Lessons Learned (So Far)

There are lessons here for anyone looking to do business with a federally-recognized Indian tribe, on tribal land, under a deal with tribal authorities, or tribally-chartered corporations.

(1) You Absolutely Must Get a Waiver of Sovereign Immunity.  And it better be a waiver sufficient to protect your investment.  Any agreement signed by the tribe should include a detailed waiver of sovereign immunity, and the waiver should extend at least as long as the latest statute of limitations for any cause of action that arises under the contract.

(2) Actually, Get Multiple Waivers of Sovereign Immunity.  Just like the above, but make sure that every party to the agreement that is tied to the tribe (e.g., tribally-chartered corporations) also waives sovereign immunity, to the same extent the tribe itself does.

(3) If Someone Offers a Land Use Agreement, Ask for a Lease.  If you are on the side that needs to protect your right to possess the land, you can frame the argument more strongly in your favor if your court pleadings refer to your "lease" rather than your "land use agreement."  If you tell the judge you have, or had, a "lease," the judge will assume you had the right to possess the land, and to exclude the landlord.  If you tell the judge you had a "land use agreement," the judge is going to have followup questions.  It's usually best to get a lease, and avoid the questions.  (Note, there are a limited set of circumstances where a land use agreement is appropriate - notably, to avoid California's possessory interest tax.  These situations usually involve rights to use public lands.)

(4) Put Big Deadlines On Your Calendar. OutCo waited a year and six days to file a lawsuit, and whatever rights to bring the dispute to arbitration expired in that time.  When it looks like there will be problems, comprehensively review the contract, and put deadlines on your calendar.  Send calendar invites with deadlines to everyone who needs to know - your executive assistant, your business partners, your board of directors or board of managers, and anyone else.  Set early alerts, so that you have some time to get everyone on the same page, create a plan, and execute on it.

(5) No, Really - Get Everything In Writing.  OutCo is arguing that yes, they had a written agreement with the tribe, but also that they had a supplementary oral agreement, which they say is important here.  Good luck with that.  The other side has a written land use agreement, signed by OutCo, that says it is the "entire agreement."

PDF of Outliers Collective complaint is here, and PDF of the defendants' motion to dismiss is here.

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